Investors sour on Snap

The messaging app managed a high-profile IPO earlier this year, butits shares have been sliding ever since. Alice Grhns reports.

"A fading share price, a young chief executive adjusting to life in the spotlight, and concerns that the tech company he leads has been overhyped: this is the situation currently facing Evan Spiegel, the 27-year-old founder of Snapchat," says James Titcomb in The Daily Telegraph.

Snap, the messaging app's parent company, hasn't enjoyed the start it hoped for since it went public in March at a $24bn valuation the biggest technology float for years. Its shares spiked 44% on its debut, briefly giving it a market capitalisation over $30bn, but they have since dropped below the IPO price and analysts have turned bearish on the stock. At this moment, "there might be a few reasons to be positive about Snap".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The odd thing is that Snapchat hasn't changed fundamentally since it floated when "investors were falling over themselves to own stock", says Shira Ovide on Bloomberg Gadfly. It still has a devoted but far from Facebook-sized crew of fans. It's still a cash bonfire with slowing user growth. It's still a creative, much-copied outlet for communication and entertainment. And the founder of Facebook, Mark Zuckerberg, "still wants to strangle Snapchat to death".

Spiegel turned down an attempt by Facebook to buy the company for $3bn in 2013, and ever since, Facebook "has made a concerted effort to lure Snapchat's target audience to Instagram by cloning many of Snapchat's unique features", says Olivia Solon in The Guardian. Instagram has now overtaken Snapchat in daily users (250 million compared to 166 million).

Yet "the bad news just kept on coming" and investors keep changing their minds, says Timothy Green on The Motley Fool. Earlier this month, analysts at Credit Suisse and Morgan Stanley downgraded their recommendations to sell. The latter is significant because it was one of the investment banks that helped to take the company public, and had initially set a one-year price target of $28. Five months on, it's slashed that to just $16 which is still above the $14 at which the stock now trades.

To add to the problems, the lock-up period (during which early shareholders in the firm are barred from selling) ends at the end of July and 1.1 billion Snap shares will become available to sell. At that point, investors "may look to dump the shares before the price falls further". If Snap fails to attract new users and is unable to raise per-user revenue, it's difficult to see "how the stock could possibly do anything but collapse", adds Green.

City talk

When you're charging people handsomely for work that you claim will enhance their reputation, the last thing you need is to have your own public image trashed, says Jim Armitage in the Evening Standard. "But that's where Bell Pottinger, one of the biggest PR firms in London, finds itself." The firm is up to its neck in allegations that it helped orchestrate a "black ops" PR campaign in South Africa deliberately "prodding powderkeg racial tensions". Bell Pottinger has apologised, started internal investigations and fired the executive in charge of the project. However, chief executive James Henderson, who "should have seen this coming", remains in place. "It's hard to see how he can survive in post for long."

After three years of stand-ins, Mike Ashley has hired a permanent finance director for Sports Direct and made an investor-pleasing forecast of improvements, says Nils Pratley in The Guardian. But if he "truly wants to herald a new era, he should let chairman Keith Hellawell go". Independent shareholders voted against Hellawell last September, but Ashley used his majority stake to save him. "Even when one person owns 62% of the shares, the chairman should still command the respect of other shareholders."

It has not been a great few weeks for Provident Financial, says Richard Fletcher in The Times. Shares in the subprime lender fell 17% in June after it warned that profits in its doorstep-lending division would be half the level expected. A few weeks later it was fined £80,000 for sending nearly a million "nuisance" text messages advertising high-interest debt. This week, the firm posted interim results and "it is not pretty". CEO Peter Crook "is putting on a brave face", but the managing director of the doorstep-lending division has left the business. "How long before Mr Crook is forced to follow him out of the door?"